AU Small Finance Bank Q1 Results: Profit Rises 30% On Higher Other Income

AU Small Finance Bank Ltd.’s profit rose in the first quarter of fiscal 2025, meeting analysts' estimates.

The lender’s standalone net profit rose 29.9% year-on-year to Rs 502.57 crore in the quarter-ended June, according to an exchange filing on Thursday. Analysts polled by Bloomberg estimated a net profit of Rs 484 crore.

AU Small Finance Bank Q1 Results: Key Highlights (Standalone)

• Net interest income up 54% to Rs 1,921 crore (YoY).

• Net profit up 29.9% to Rs 502.57 crore (YoY).

• GNPA at 1.78% versus 1.67% (QoQ).

• NNPA at 0.63% versus 0.55% (QoQ).

Net interest income, or core income, for the lender increased 54% year-on-year to Rs 1,921 crore. Other income grew 73% year-on-year to Rs 546 crore. This was driven by fee income, third-party product distribution and credit cards, according to the press release.

Asset quality for the lender deteriorated, with the gross non-performing asset ratio increasing 11 basis points quarter-on-quarter to 1.78%. The net NPA ratio also worsened to 0.63%, as compared to 0.55% in the previous quarter.

Sanjay Agarwal, MD and CEO of AU Small Finance Bank, told analysts in a post-results call, "...not seeing any vulnerability around our asset quality... Assets strategy is in place, confident about it."

Provisions for the quarter rose nine times or 870% year-on-year to Rs 319.2 crore. Sequentially, it rose two times or 140%.

In the Q1 FY25 investor presentation, the bank explained that it has a provision worth Rs 64 crore against standard restructured assets and Rs 17 crore worth of contingency provisions for microfinance business.

Its provision coverage ratio stood at 84% for the quarter.

The lender's deposits stood at Rs 97,290 crore, as compared to Rs 97,704 crore in the previous quarter. "Bank decided to utilise excess liquidity built up in the previous quarter (QoQ growth was 9% in Q4 FY24)," it said in the presentation.

It also focused on growing retail deposits while retiring high-cost deposits.

On this, Agarwal told analysts that gathering deposits are not easy but they expect to save some costs around it in this year.

"...our focus will be on high-yielding assets... This year's target is more than Rs 60,000 crore disbursements," he said. "...the focus would be more on branch banking for deposits." It also aims to raise low-cost deposits.

Agarwal guided that the bank will be able to build deposits around Rs 25,000 crore in the next nine months.

He added that the normalised credit costs for the bank will be around 1.10-1.15%, with the kind of market and yields it deals in.

Elaborating on the business, Agarwal said that credit cards business has some challenges but the bank is focused on it.

As far as the microfinance business goes, the feedback received is that the market is a little heated up. However, the bank's MFI portfolio is only about 10%, Agarwal said.

The CASA ratio for the lender stood at 33% for the quarter.

The lender's advances grew 3.4% quarter-on-quarter, with a loan portfolio of Rs 99,792 crore on a pro forma merged basis.

Responding to a question, Agarwal said that going ahead, the current account market and opportunities in it would continue to grow. Here, business banking is an important leverage.

"We are watching how rate competition stands throughout the year," he told analysts.

In addition, the bank's board has approved the filing of the application for transition to a universal bank. The board has appointed a committee of directors under HR Khan to vet the application for a Universal Banking licence.

Agarwal told analysts that the bank will be able to file this application only around August.

"...(We) don't have to incur any extra cost to build balance sheet, etc.; It's an easy process... won't call it AU Universal bank; it will be AU Bank," he said.

In terms of net interest margin, the management said in the analysts' call that the guidance for the full year will be around that of the previous year's 5.5%, at around 5.7-5.8%.